Fed raises rate to 1-1.25%, hints at further hike

Fed raises rate to 1-1.25%, hints at further hike

Sveva Terracina
|
19 Giugno, 2017, 04:00

Fed policymakers also gave some details for how they intend to shrink their $4.5-trillion balance sheet beginning this year. The central bank had pushed rates to near Zero in response to the financial crisis.

Eighteen of all primary dealers surveyed said the Fed would announce the start of its balance sheet normalization at its September 19-20 policy meeting.

"With financial conditions remaining supportive. and U.S. financials breaking higher, the Fed may see little reason to moderate its rate hike projections when meeting today", strategists at Morgan Stanley said in a note to clients. Household spending has picked up in recent months, and fixed investment by business has continued to expand.

Although inflation has declined recently and, like the measure excluding food and energy prices, is running somewhat below 2 per cent in the near term, the Fed expects it to stabilize around the committee's 2 per cent objective over the medium term.

Expressing confidence that the United States economy is recovering, the Federal Reserve said America's labour market has "continued to strengthen" and economic activity has been "rising moderately" so far this year.

"As well, yesterday's FOMC (Federal Open Market Committee) meeting was less dovish than expected as the Fed kept its policy forecasts unchanged despite clear deceleration in inflation and a couple of bad data points yesterday".

Primary dealers had forecast the Fed would start gradually unwinding its $2.46 trillion worth of government debt and $1.77 trillion of mortgage bonds. According to the CME FedWatch Tool, traders expect the next rate hike to come in March 2018.

In the wake of the financial crisis, the central bank added Treasury securities and mortgage-backed securities to its balance sheet.

The Committee now expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated.

Gold prices dropped to a three-week low on Thursday, as the dollar continued to appreciate after the Federal Reserve's Wednesday decision to raise interest rates.

But the moves were overshadowed by inflation and retail sales data earlier in the day that fell short of market expectations.

The US jobless rate fell to a 16-year low last month.

The rise was widely anticipated after a low unemployment rate, but other economic gauges, including inflation, have been weaker.

Official exchange rate of Azerbaijan's national currency, the manat, against the US dollar was set at 1.7023 AZN/USD since June 14. This rate is a 25 basis points increase over the current one of 0.91 per cent.

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